Chart Fanatics
July 30, 2026
Price Action Trading Strategy for Identifying Trend Reversals
TL;DR
Traders can identify profitable price action setups by looking for rejection at lower highs in downtrends and upper highs in uptrends, then trading the subsequent larger move in the trend direction.
Key Takeaways
- 1Bounce strategy applies to call options while rejection at resistance applies to put options
- 2In downtrends, look for price to create a lower high, get rejected at that level, then make a lower low for the biggest profitable move
- 3In uptrends, the primary move is going long at support, with short trades being riskier alternative positions
- 4Price rejection at key levels creates the setup for trading the next leg of the trend rather than fighting the overall direction
Notable Quotes
“The biggest move in the trend on the uptrend is going for long. There are still going short at some point, but that's so risky.”
— Trader
Chapters
1. Call vs. Put Strategy Framework
Bounce patterns trigger call options while rejection at levels triggers put options, establishing the foundation for directional bias.
2. Downtrend Price Action Setup
In downtrends, traders identify lower highs where price gets rejected, which precedes a lower low movement for maximum profit potential.
3. Uptrend Trading Approach
The biggest moves in uptrends come from going long at support levels, with shorting being a higher-risk alternative strategy.
Glossary
- Price Action
- The movement and behavior of a security's price on a chart, used to identify trading opportunities without relying solely on indicators
- Lower High
- A price peak in a downtrend that is lower than the previous peak, indicating weakening upward momentum
- Lower Low
- A price trough in a downtrend that is lower than the previous trough, confirming continuation of the downward trend
- Rejection
- Price movement that fails to break through a resistance or support level and reverses direction